MRO Is Not A Key Focus Of Airline Alliances

Maintenance, other than line maintenance, has not really been a priority for alliances—but since they have made some joint seat purchases, perhaps it is time to look at leveraging aftermarket expenditures.

For instance, Star Alliance has a Web-based exchange where all its member airlines trade surplus spare parts from their inventories. The portal, which is operated in cooperation with Aeroxchange, has been up and running since the middle of last year, and says Christian Klick, a Star Alliance vice president, “We have since then seen constantly rising activities and have recorded savings versus OEM prices in low double-digit millions of U.S. dollars, which is very promising for this fairly young alliance initiative.”

Star has also worked on a joint economy-class seat that has been flying on the first aircraft since June, but the group is not looking at joint purchases nor is it planning shared maintenance, repair and overhaul. “It is not part of the current assignment, which our organization has received from member CEOs,” Klick confirms, while noting that several of Star’s member carriers are assigning maintenance business to each other on a bilateral basis.

SkyTeam executives also have stated that they have no plans for a joint MRO services purchase on the alliance level. “Our focus remains on delivering on customer-focused initiatives that will add even more seamlessness in the customer journey,” a spokesman for SkyTeam tells Aviation Week.

However, as is the case within Star, members with large maintenance shops and capabilities are pitching their services to fellow members or are building relationships. KLM Engineering & Maintenance has developed MRO centers of excellence with Air France Industries and, as a next step, is weighing the merits of forging maintenance agreements with other alliance partners.

Engineering and maintenance is an active area of cooperation among Oneworld’s member airlines, and has been for years. Oneworld points out that it was the first group to bring together member carriers to sit down with key airframe and powerplant manufacturers to address common issues and also to work together on the development of new aircraft and engine types.

“With the recent and impending introductions of the Boeing 787 and AirbusA350, both of which have been ordered by a significant number of Oneworld member airlines, Oneworld carriers have shared expertise and best practices to help each other achieve smooth introductions of the new aircraft types,” says Michael Blunt, Oneworld alliance vice president of corporate communications.

He adds that the alliance’s carriers “also have a long pedigree of cooperation” in the field of MRO, sharing facilities and suppliers at many outposts and extensive pooling and sharing of supplies. The heads of engineering and maintenance functions at Oneworld’s member airlines meet several times a year to review progress and set strategy for working together. Reporting to them are working groups covering specific MRO issues facing alliance members—covering specific aircraft and types, component supplier performance, spares and purchasing, and other key areas of best practice.

The alliances may well be looking at joint purchasing of MRO as part of their drive to achieve cost synergies, but whether it gains serious traction remains in doubt, asserts ICF SH&E Vice President David Stewart.

Many airlines, including alliance partners, will already be contracting together on line maintenance (probably on a bilateral basis) but will do so through International Airlines Technical Pool (IATP), not via the alliance, he says.

The success rate and the benefits of cost synergies, including MRO, on the alliance level are much lower than the commercial (market and revenue) upsides because, Stewart notes, “to make material levels of savings means taking typically long-term, difficult-to-exit decisions that almost always also compromise each airline’s own individual product, brand or service standards.”

Logically and given historical experience, joint purchasing of aftermarket services should likely start with those items that are essentially “commodities,” which are highly standardized. Examples include consumables, economy-class seats and tires, Stewart believes.

He says the other potential area for leveraging buying power is to focus on joint “strategic” purchasing of items where the costs (and therefore potential savings) are substantive, yet there are only a few suppliers available in the market. Examples are landing gear and auxiliary power-unit-related expenditures.

“The more complex the harmonization of the standards required in a contract, and the higher the barriers to exit, the more problematic the joint purchasing becomes. So it would be very complex, for example, for a group of airlines to agree to a single total maintenance support package [covering e.g., rotable management] with one supplier [if indeed this was even strategically desirable],” warns Stewart.

And could the pooling of MRO potentially also lead to competitive distortions? It seems sort of logical that work would be kept within the alliance. “There would be competitive tensions and also much debate on ensuring that the ‘pooled’ MRO supply is at a competitive cost,” Stewart contends.

“The MRO market is highly competitive, and many airlines will not want to give up the freedom of choice and their ability to get the best deal, in or out of the alliance.” Major MRO services providers such as Star’s Lufthansa Technik and SkyTeam’s Air France Industries KLM E&M are not always the lowest-cost provider in the market “nor do they necessarily want to be,” he adds.

The keys to success are, he concludes, “senior management commitment; identifying areas for cooperation where commonality of interest and standards are more readily aligned; and ensuring that the cost benefits are quantified, validated and material enough to justify the investment of management time.”

Meanwhile, other initiatives outside the alliance environment are being established for airlines to work together on the E&M side.

Under the auspices of the Arab Air Carriers Organization, seven member airlines have established an MRO Task Force that has been working toward a range of initiatives to reduce MRO costs. Line-maintenance cooperation was the first to be tackled, but other areas include the sharing of inventory and training resources, joint vendor audits and joint purchasing.

Also, the Association of African Airlines in 2011 established an MRO Task Force to explore the feasibility of joint pooling of inventory, collective purchase of certain items and optimal use of MRO facilities.